High Court considers application of much-criticised exception to without prejudice rule

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The High Court has held that the content of “without prejudice” (“WP”) communications between the parties to the proceedings was inadmissible, though the fact of the WP negotiations could be referred to. The counterparty to the WP communications would be prejudiced by admission of the communications, and it had neither deployed the content of the WP communications nor put in issue matters which were only justiciable by reference to them: Briggs v Clay [2019] EWHC 102 (Ch).

Whilst the court accepted that the list of exceptions to the WP rule is not closed, it emphasised that any exception must be of the same character or a principled and incremental extension of an existing exception. The court did not regard the present case as falling within the scope of the (much-criticised) exception established in Muller v Linsley & Mortimer [1996] 1 PNLR 74, where the WP communications were relevant to whether a party had reasonably mitigated his loss in negotiating a compromise of separate proceedings, and the party had himself put the reasonableness of the settlement in issue. The court noted that the Muller exception had not previously been held to apply in the case of WP negotiations in the very claim that is before the court, and said that the exception sought to be identified in this case risked significantly undermining the policy of encouraging parties to attempt to settle disputes in multi-party litigation.

The decision provides a careful analysis of previous case law on the scope of the WP rule, and seeks to clarify the extent of the Muller exception which is a matter of some uncertainty. The decision suggests that the exception will come into play where negotiations are relied on to prove some collateral matter and the other party to the WP communications will be unaffected by admission of the WP material, or where the party seeking to assert the privilege has raised an issue which is only justiciable upon proof of the WP communications.

The claimants, who were a number of participating employers and the trustees of a pension scheme, brought a claim for damages for professional negligence against the former scheme administrators/professional advisers (“Aon”) and the claimants’ previous solicitors and counsel (the “Lawyers”).

The claim followed separate proceedings between the claimants and the representative beneficiaries of the scheme in which various deeds Aon had prepared for the scheme were held to be invalidly executed and of no effect. The claimants were granted permission to appeal that decision and engaged in WP discussions with the representative beneficiaries seeking to reach a compromise of the appeal. Aon was not involved in these discussions, but was kept informed by the claimants. At the same time, there were negotiations between the claimants and Aon about Aon’s potential liability.

The negotiations between the claimants and the representative beneficiaries resulted in an agreement to compromise the appeal (the “Settlement”). No agreement was reached between the claimants and Aon, however, and so the claimants issued their claim seeking compensation for losses arising from Aon’s alleged breach of duty.

In its defence to the claim, as well as denying any breach of duty, Aon alleged that the Lawyers were negligent in their conduct of the original claim and the negotiations leading to the Settlement, in failing to raise an argument that certain employees never became a part of the scheme (the “Participating Employer Argument”). Aon claimed that this was a new intervening event which broke the chain of causation between its alleged liability and the claimants’ losses. The claimants adopted these arguments and added the Lawyers to the proceedings.

In their defences, as well as denying any negligence, the Lawyers pleaded that Aon was closely involved in both the proceedings against the representative beneficiaries and the negotiations leading to the Settlement and at no point raised the Participating Employer Argument. In support of that pleading, the Lawyers set out in their defences a large amount of detail in relation to the WP negotiations between the claimants and Aon.

Aon sought a declaration that the WP correspondence not be referred to in evidence or in submissions at trial, and that the Lawyers serve replacement versions of the defences which omitted the WP content. There was no dispute that the relevant correspondence was WP; rather, the Lawyers submitted that:

Aon had impliedly waived the WP privilege by making the allegations they had against the Lawyers (the claimants, for their part, had expressly waived their privilege in relation to the same communications).

The Lawyers were entitled to rely on the correspondence by way of an exception to the WP rule, because it would be unjust to require them to face the allegations made against them without being allowed to deploy material that might enable them to answer those allegations, relying on the exception established in Muller v Linsley & Mortimer [1996] 1 PNLR 74 (see below) or a comparable exception.

Decision

The court (Fancott J) held that the fact but not the content of the WP communications was admissible in the proceedings.

The court noted that this case was unusual in that related WP communications, between the claimants and the representative beneficiaries, would be in evidence at trial (because the claimants had waived privilege in those communications by suing the Lawyers in relation to the conduct of those negotiations, and the representative beneficiaries had confirmed their agreement to the communications being disclosed). However, the Lawyers were seeking to put in evidence the content of separate WP communications made in an attempt to settle the current claims against Aon.

Implied waiver

The court rejected the argument that Aon had impliedly waived WP privilege over the communications.

The court observed that, because such a waiver would have the effect of the whole of the WP communications becoming admissible to prove any relevant fact, “an implied waiver of the privilege attaching to without prejudice negotiations is not lightly inferred”.

The case law establishes that when a party to WP negotiations deploys the content of the negotiations on the merits of the claim, even for a limited purpose, that party thereby waives its right to insist on the protection of the rule if the counterparty accepts that the negotiations can be referred to. Otherwise, the judge said, the court must ask itself whether, given the purpose of the rule, any reference to the negotiations is such that it would be unjust for that party to insist on the protection of the rule.

Here, Aon had not referred to or “deployed” any of the content of the WP communications. Whilst Aon had put in issue the reasonableness of the Settlement, the Lawyers’ alleged negligence, the cause of the claimants’ loss and the extent to which the Lawyers (as distinct from Aon) should be responsible for the claimants’ loss, those issues were independent of the fact or content of the WP negotiations between the claimants and Aon.

Exception to the WP rule

The court also concluded that there was no exception to the WP rule which justified admission of the content of the WP communications.

The judge agreed with the Lawyers that the claimants had waived their right to WP protection by bringing the negligence claim against the Lawyers. Where negotiations were relied on to prove some collateral matter (such as reasonable mitigation of loss) and the other party to the WP communications was unaffected by the claim (like the representative beneficiaries in this case) the Muller exception would, the judge said, be readily applicable.

However, Aon was not in the same position as the representative beneficiaries, whose claims had been settled. The claim against Aon was pending, which meant that Aon had a legitimate continuing interest in the broad protection conferred by the WP rule (namely the confidentiality of its negotiations to try and settle the claim). Aon risked losing that protection if the content of the WP communications was put in evidence, even if to prove a collateral matter.

The court then considered whether the fact that Aon had raised the allegations of negligence against the Lawyers affected the position. It noted the general principle that bringing a claim or making an allegation does not disentitle a party from relying on WP privilege, as that would undermine the operation of the rule. However, the judge said, that general principle “may well be qualified” where an issue is raised which is only justiciable upon proof of WP negotiations. Cases such as Muller were examples of that kind. As the judge put it:

“A claimant (or defendant) cannot at one and the same time raise an issue to be tried and rely on without prejudice privilege to prevent the court from seeing the evidence that is needed to decide it.”

The court noted, however, that the Muller exception had not previously been held to apply in the case of WP negotiations in the same claim that was before the court. For the exception to arise, the judge said, it must be necessary that the material be admitted to resolve an issue raised by a party to the WP negotiations, in circumstances where the legitimate protection given to the parties to the negotiations was not adversely affected.

The court then reviewed whether it was necessary to admit the WP communications in respect of the issues raised by Aon. Ultimately, the court concluded that it was not necessary, on any of the issues, for it to examine the WP communications in order to have a fair trial. The judge accepted that in the absence of an exception to the WP rule, a trial judge would have an incomplete picture of events. He observed, however, that this was simply the consequence of an exclusionary rule. The WP rule is broad in its effect and with narrow exceptions. Although the list of those exceptions is not closed, any exception must be “of the same character or a principled and incremental extension of an existing exception”.

The court also rejected the Lawyers’ argument that it could separate out the WP materials and redact those materials to the extent necessary. The court regarded such redaction as encountering a number of difficulties both in practice and principle (particularly since there was before the court “no definitive map of the surgery to be performed”).

The court did, however, agree with the Lawyers that the fact of the WP communications could be referred to in evidence (even though the content of those communications could not) where that fact was relevant to an issue in the case. The court accepted that the fact of the WP negotiations could be relevant to the “new intervening act” issue and to the apportionment of responsibility between Aon and the Lawyers.

Herbert Smith Freehills LLP is authorised and regulated by the Solicitors Regulation Authority.

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